Invoicing

What can an Indian service exporter do when a foreign client does not pay?

Author:: Editorial team, serviceexportguide.com
Verified by:: Editorial team
Published: 28 October 2026
Last modified: 30 October 2026
Reading time: 7 min read

Short answer

An export invoice must be realised within nine months of its date, or twelve months for rupee invoices.¹² The AD bank can extend that period on a reasoned request.¹ A reduction in export value can be allowed on declaration up to ₹10 lakh.¹ Under an LUT, late payment makes IGST with interest payable.³

Option or rule	Applies to	Governed by	Deadline	Penalty	Last verified
Realisation	Every exporter of services	Regulation 5, 2026 Regulations, as amended 22 September 2026¹²	Nine months from invoice; twelve if in rupees²	Further exports only against full advance or irrevocable LC after one year past due (regulation 13)¹	28 October 2026
Extension	Exporters still expecting payment	Regulation 5¹	Apply before the realisation period ends	Not applicable	28 October 2026
Reduction in export value	Exporters paid in part	Regulation 6¹	Not covered on this page	Not applicable	28 October 2026
Set-off	Exporters who also owe the same overseas party	Regulation 7¹	Within the realisation period¹	Not applicable	28 October 2026
IGST under LUT	GST-registered exporters under an LUT	CGST Rules, 2017, rule 96A(1)(b)³	One year from invoice, or FEMA period if later, plus 15 days³	IGST with interest³	28 October 2026

A late or missing payment from a client abroad is a commercial problem first. For an Indian exporter it also becomes a regulatory one: the bank tracks each unpaid export, and an LUT export that stays unpaid can turn into a GST liability.¹³ Acting early keeps both under control.

This guide is for any service exporter, whether a video editor waiting on a US production house, a consultant with a slow-paying German client, or an agency with an unpaid retainer. Rules are as of October 2026.¹²

What is an unpaid foreign client invoice under Indian rules?

An unpaid foreign client invoice is an export of services invoice that has not been realised, and it must be realised within nine months from the invoice date from 1 October 2026, under regulation 5 of the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 (the 2026 Regulations).¹² Where the export is invoiced or settled in Indian rupees, the period is twelve months.²

The date the client was supposed to pay does not change this clock; it runs from the invoice date. See export realisation period.

Who does the unpaid foreign invoice rule apply to?

The unpaid foreign invoice rule applies to every service exporter whose export goes through a bank, with an added GST consequence for exporters under a Letter of Undertaking (LUT).¹³

Entity type	Applicable	Why	Best for
GST-registered exporter under an LUT	FEMA and GST rules	Rule 96A makes IGST with interest payable if payment is late³	Registered freelancers and agencies
Unregistered freelancer	FEMA rule only	No LUT and no IGST to pay on the invoice; the realisation rule still applies to exports through a bank¹	Small exporters below the GST limit
Agency that also buys from the client's group	FEMA rule, with set-off possible	Regulation 7 allows set-off with the same overseas party or its group¹	Agencies with two-way trade

How do you follow up when a foreign client does not pay?

You follow up with a written reminder that quotes the invoice number, amount, currency, due date and payment details. Many late payments are caused by a missing purchase order number, a payables system that rejected the invoice, or a wire that bounced because of a typo in the beneficiary details.

Confirm receipt: check the invoice was received and approved by the person who pays, not just the person you work with.
Check your details: account name, SWIFT code, IBAN or routing details where relevant. See bank details for international payments.
Ask whether the payment was sent: if it was, ask for the remittance advice or the SWIFT reference and trace it. See international payment stuck.
Send a firm reminder: after the due date, refer to the contract's payment and late-payment clauses.
Pause further work: if your contract allows it, and put new work on advance terms.
Talk to your AD bank: before the realisation period ends, ask for an extension, a reduction or a set-off, as set out below.¹

Keep every email and message. Your bank may ask for them if you later request an extension or a reduction.¹

What options and deadlines apply to an unpaid foreign invoice?

An unpaid foreign invoice can be extended, reduced or set off through your authorised dealer (AD) bank under regulations 5, 6 and 7 of the 2026 Regulations, and commercial recovery runs alongside.¹

Option	What it does	Rule	Best for
Extension	AD bank extends the realisation period on a reasoned request¹	Regulation 5¹	Clients who still intend to pay late
Reduction in export value	AD bank allows a lower export value; a declaration may suffice up to ₹10 lakh¹	Regulation 6¹	Partial payments, discounts, deducted bank charges
Set-off	Receivables offset against payables to the same party or group, within the realisation period¹	Regulation 7¹	Agencies that also buy from the client's group
Payment plan	Instalments confirmed in writing, each inside the realisation period or an extension¹	Contract	Clients with cash-flow problems
Platform dispute	Marketplace or card dispute process	Platform terms	Work booked through a marketplace or paid by card
Demand letter or collection	Formal demand, collection agency or small claims in the client's country	Client's local law	Larger amounts that justify the cost

Typical reasons for a reduction are a negotiated discount after a quality dispute, a cancelled part of the scope, or overseas bank charges deducted from the remittance. If the agreed amount changes, you may also need a credit note for GST. See extension of export realisation period, reduction in export invoice value, short realisation of export proceeds, set-off of export receivables and chargebacks on international payments.

What happens if a foreign invoice stays unpaid?

If a foreign invoice stays unpaid under an LUT, rule 96A(1)(b) of the CGST Rules makes the integrated tax payable with interest, and after a long delay regulation 13 restricts new exports.¹³

GST under LUT: you pay the tax due with interest within 15 days after one year from the invoice date, or the period allowed under the Foreign Exchange Management Act, 1999 including any extension the RBI permits, whichever is later, or a further period the Commissioner allows, if payment is not received in convertible foreign exchange or in rupees where RBI permits.³
Export definition: without receipt of payment in that form, the supply also fails condition (iv) of the export definition in section 2(6) of the IGST Act.⁴
New exports: if export proceeds remain unrealised for more than one year after the due date, further exports may be made only against full advance payment or an irrevocable letter of credit.¹
Bank monitoring: unpaid exports stay open in the bank's monitoring system until closed by realisation, reduction or write-off.

See export proceeds not realised, write-off of export bills and EDPMS for service exporters.

Which RBI rules apply to an unpaid foreign invoice?

The RBI rules for an unpaid foreign invoice are regulations 5, 6, 7, 13 and 19 of the 2026 Regulations, in force from 1 October 2026, with regulation 5 as amended on 22 September 2026.¹²

Rule	Date	Plain meaning
Regulation 5	Amended 22 September 2026²	Realise within nine months of the invoice, twelve for rupee invoices; the AD bank can extend¹²
Regulation 6	2026 Regulations¹	AD bank can allow a reduction in export value; declaration may suffice up to ₹10 lakh¹
Regulation 7	2026 Regulations¹	AD bank can allow set-off against payables to the same party or group¹
Regulation 13	2026 Regulations¹	After one year past due, further exports only against full advance or irrevocable LC¹
Regulation 19	2026 Regulations¹	Each bank publishes a written policy and SOP on extensions and charges¹

Read your bank's policy and apply before the nine months end, with your correspondence showing the client still intends to pay.¹

What are the common mistakes with unpaid foreign invoices?

The common mistakes with unpaid foreign invoices are tracking the client's due date instead of the invoice date, applying for an extension too late, and starting new work without advance terms.¹²

Tracking the wrong date: track every open invoice against its nine-month realisation date, not just its due date.²
Late extension request: apply before the realisation period ends.¹
No advance: take an advance or a deposit from new clients. See export payment terms.
One large invoice: break large projects into milestones, each invoiced and paid before the next starts.
Vague contract: put a clear due date, currency and late-payment clause in the contract. See payment terms in freelance contracts.
Missing fraud signals: watch for warning signs of export payment fraud, such as overpayments or requests to refund to a different account.

For example, say a consultant's German client pays 80% after a scope cut: the consultant asks the AD bank for a reduction in export value under regulation 6 and issues a GST credit note if registered.¹

The choice of recovery route depends on the amount, the contract's governing law and dispute clause, and the client's location. Take advice from a lawyer for the recovery itself and from a chartered accountant on the GST and income tax treatment of the unpaid amount.

How did we verify this?

We checked this page against the sources below on 30 October 2026. Read our methodology or report an error.

Frequently asked questions

How long do I have before an unpaid export invoice becomes a FEMA problem?+

An unpaid export invoice must be realised within nine months from the invoice date for foreign-currency invoices, or twelve months for rupee invoices, from 1 October 2026.² Your AD bank can extend the period on a reasoned request under regulation 5.¹ Apply before the period ends, with correspondence showing the client still intends to pay.

My client paid only part of the invoice. What do I do?+

When a foreign client pays only part of an export invoice, ask your AD bank to allow a reduction in the export value under regulation 6 of the 2026 Regulations. For an invoice up to ₹10 lakh or equivalent, a declaration from you may be enough.¹ You may also need a GST credit note if the agreed amount changes.

Do I have to pay GST if a foreign client never pays?+

If you exported under an LUT, rule 96A requires you to pay the IGST with interest within 15 days after one year from the invoice date, or the period allowed under FEMA including any RBI-permitted extension if that is later, unless the Commissioner allows a further period.³ Ask a chartered accountant how to treat it in your returns.

Can my bank stop me from taking new export orders?+

If export proceeds remain unrealised for more than one year after the due date, regulation 13 of the 2026 Regulations says further exports may be made only against full advance payment or an irrevocable letter of credit.¹ Unpaid exports stay open in the bank's monitoring until closed by realisation, reduction or write-off.

Can I offset what a client owes me against what I owe them?+

Regulation 7 of the 2026 Regulations lets the AD bank allow set-off of export receivables against import payables with the same overseas party, or its group or associate companies, within the realisation period.¹ Set-off is uncommon for freelancers but can apply to agencies that buy software or services from the group they sell to.

Does an unregistered freelancer owe GST on an unpaid foreign invoice?+

An unregistered freelancer has no LUT and no integrated tax to pay on an unpaid foreign invoice, because the rule 96A liability attaches to exports made under an LUT.³ The FEMA realisation rule in the 2026 Regulations still applies to exports that go through a bank, so the nine-month clock still runs.¹

Where do I find my bank's rules on export extensions?+

Regulation 19 of the 2026 Regulations requires each bank to have a written internal policy and standard operating procedure on extensions and charges, published on its website.¹ Read your AD bank's published policy before asking for an extension, so your request includes the documents and reasons the bank lists.

This page is general information for Indian service exporters, not tax or legal advice. Rules change and outcomes depend on your facts, so confirm with a chartered accountant before acting.

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RBI and FEMA